The most common first question I get asked about loyalty and relationship marketing is “What should my company do?” My reply is almost always, “Well, what do you need?” That is, what trend, change, issue or opportunity is prompting the discussion in the first place? Once we can answer that question, we can bring the full spectrum of strategic and tactical options into play.
This column focuses on both parts of this problem – understanding the need and addressing the need. The two are closely related. The confidence we have in understanding the need helps us decide how specific we can get in addressing the need. While the details of the interaction vary widely based on the nature of the company, the process itself is easily summarized.
Discovery – Understanding the Need
The companies we work with usually fall somewhere in the spectrum between fact-based and brand-based. Regardless of the company type, our objective is the same – get to the root causes that drive the need for a new or revised loyalty or relationship strategy or program If we can get to a point where both sides agree on the situation, it is far, far easier to evaluate and agree on the next steps. The end result of this first phase drives the direction of the second phase, where programs, campaigns and strategies are developed to improve the business.
Fact-based discovery sounds like it is straightforward. But ask any business intelligence analyst how easy it is to spot changes in the core business and they’ll tell you how hard it is to find signals in the noise. Companies that religiously track key performance metrics are the easiest to help. Ninety-day repurchase rate declining? No problem. Average transaction size declining? No problem. Churn rate rising? No…well, that’s not always so easy. The drawback to such metrics is the search for causality. The metrics often show the effect, but we don’t necessarily know the cause. So much of the discovery process is probing to develop hypotheses about root causes for particular performance metrics.
Brand-based discovery is trickier. Companies with a brand-centric mindset will look beyond the short-term numbers and focus on how programs fit into the overall personality of the brand. The discovery process is focused on clearly defining the brand personality, understanding the brand promise(s), and setting boundaries for what is acceptable and what is not. Brand-centric companies usually have a persona established for their target customer, which helps to define the audience. But using personas occasionally oversimplifies the problem. In these cases, discovery includes teasing out the secondary segments in the customer base and understanding their needs.
It is usually faster and easier to get a good sense of the possibilities when companies have elements of both types of discovery. Since there are limits on the available strategies imposed by both the facts and the brand, we can zero in on a smaller set of options as we develop the strategy and program designs.
Strategy – Addressing the Need
The strategy phase needs to address three key subjects — eligibility, objectives and benefits.
Once discovery is performed, understanding and addressing these three areas becomes much more straightforward. Going back to the ubiquitous question of “What should my company do?” we can lay out a path aligned with the company’s current reality. In the vast majority of cases, when a prudent amount of effort is applied to the discovery phase, the strategy phase is shorter, more productive, more focused and the results are easier to communicate and sell internally.
Eligibility is the strategy that defined which customers can (or should) be program members, or part of clubs, or program tiers, or promotional programs, or e-mail programs, etc. We generally think of customer segmentation and targeting as part of the eligibility question. In this phase we will resolve the entire customer base into smaller segments, and think through the behavior or information needed to make a customer eligible for various parts of the program.
One key question that must be answered is whether all customers are eligible for the program. This is not always ideal due to the cost of program delivery and communications. Looking at specific examples, a brand-centric company may only want its elite customers invited into a program, or it may want to include elites based on spending and non-elites based on behavior that predicts the possibility for high value. A fact-based company may know that it is losing market share among families under 30, and specifically target clubs based on that demographic.
Objectives are an innocuous and dangerous step. Many companies load in every positive objective they can think of, and make it impossible for any program to succeed. It is crucial to focus on the objectives that will allow your strategy to be crisply defined, whether that is a focus on frequency, average transaction size, cross-category purchasing, churn rate, up sell/cross-sell, ARPU, 90-day repurchase rates, or retention. The eligibility and targeting strategy must be tied to one or two of these objectives. Our experience shows the more focused the objective, the higher likelihood of success. One of our clients came to us with a fanatic focus on frequency, and as a result their program is very successful at driving 60-day repurchasing and overall frequency. Average transaction size is up only slightly, but they were not concerned with that metric, so the program is not encumbered with extraneous benefits or tactics to drive transaction size.
As you might guess, a company with a clear understanding of underlying root causes, customer segments and eligibility, and segment-based objectives has an easy time putting together a benefit structure. Appropriate alignment of frequency, lock-in, recognition, cross-sell or other strategies with the prior factors becomes a focused and structured discussion. When this process is not followed, and a company jumps directly to benefit strategy, the conversation is far more difficult, since there is no way to evaluate the various opinions around the table. A common output is a program with a wide range of benefits, trying to satisfy the needs of every one of the company’s customers.
Connecting the discovery and strategy phases is a critical success factor for relationship and loyalty marketing program design. This extra work at the beginning of the process pays rich dividends in the long run. You will see an increase in the likelihood of a positive ROI from specific initiatives within the program. Channeling expenditures to the customers most likely to respond will help ensure the program’s value proposition is more focused and easier to understand.
Michael Greenberg is vice president of marketing for Loyalty Lab, a San Francisco-based developer of customer loyalty programs for the retail industry, and writes a monthly column for CHIEF MARKETER. He can be reached at Michael@LoyaltyLab.com